The financial squeeze has been exacerbated by a recent ₹3 per litre reduction in retail milk prices, a move that contributed to an estimated ₹550 crore annual loss for Aavin, the state-run dairy cooperative. Unlike other state corporations that receive direct fiscal support when operating losses arise, Aavin has not been reimbursed for its losses following the price reduction, leaving it to absorb the hit alongside producer-members.

Under pressure from farmers, the government allowed Aavin to use internal resources — specifically funds from the Milk Cooperative Federation and profit-making district unions — to clear incentive arrears for a limited period. Although dues for June through August were eventually paid using these internal funds, subsequent months’ payments are still pending. This partial settlement, farmers argue, has further eroded cooperative financial stability.

Aavin’s Managing Director John Louis has maintained that the cooperative must strike a balance between safeguarding producer incomes and ensuring milk remains affordable for urban consumers, especially in centres like Chennai. He also asserted that most primary cooperatives remain profitable and that pending dues will be cleared soon. However, farmer leaders counter that diverting funds to cover arrears has cut into dividends and pushed several societies deeper into loss.